Good day, and welcome to the Yum! Brands, Inc. Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note today’s event is being recorded. I would now like to turn the conference over to Keith Siegner, Vice President, Investor Relations, M&A and Treasurer. Please go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining us. On our call today are David Gibbs, our CEO; Chris Turner, our Chief Financial Officer; and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from David and Chris, we'll open the call to questions. Before we get started, I'd like to remind you that this conference call includes forward-looking statements. Forward-looking statements are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. We're going to do our best to provide our current thinking about the impact of the COVID-19 pandemic on our business, but obviously, this situation is completely unprecedented and evolving. So any forward-looking remarks should be considered in light of the uncertainty regarding the severity and duration of the pandemic and the variables that will be impacted as a result. All forward-looking statements are made only as of the date of this announcement and should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC. In addition, please refer to our earnings releases and relevant sections of our filings with the SEC to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call. Please note the following regarding our basis of presentation. First, all system sales results exclude the impact of foreign currency. Second, core operating profit growth figures exclude the impact of foreign currency and special items. For more information on our reporting calendar for each market, please visit the Financial Reports section of our website. We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. Please be advised that if you ask a question, it will be included in both our live conference and in any future use of the recording. We'd like to make you aware of upcoming Yum! investor events and the following: First, disclosures pertaining to outstanding debt in our restricted group capital structure will be provided at the time of the Form 10-Q filing. Second, third quarter earnings will be released on October 29, 2020, with the conference call on the same day. Now, I'd like to turn the call over to Mr. David Gibbs.

Thank you, Keith, and good morning, everyone. I want to start by thanking and recognizing our employees, franchisees, and restaurant team members around the globe. They have adapted to the incredible challenges of 2020 with remarkable agility, bringing our delicious, affordable food to customers in a low-contact manner. As a result, we are well positioned to leverage our scale and capabilities to generate profitable system sales growth in the new customer environment. On the foundation of our resilient, highly diversified business model, we are driving our recipes for growth to emerge a stronger company for all stakeholders. Our Recipe for Growth, using our four key growth drivers, continues to guide our business strategy. So I'll start with an overall review of the second quarter and use a few examples to illustrate the power of our relevant, easy, and distinctive, or RED, brands unmatched operating capability and Unrivaled Culture & Talent growth drivers. Then Chris will share more details of our Q2 results, our bold restaurant development growth driver, and our healthy liquidity position. First, Q2 results: the quarter was significantly impacted by COVID-19, the primary driver of our 25% core operating profit decline. Overall, Yum! system sales declined 12% with a 15% same-store sales decline, offset by a 3% increase in net units year-over-year. The impact on our sales in each of our markets depended on the timing, severity, and duration of the outbreak, as well as our reliance on dine-in sales in the market. Overall, our sales declines were primarily driven by temporary store closures, which peaked in early April at about 11,000 restaurants. We then experienced a consistent pace of reopening until our June 10 8-K filing when approximately 5,000 units, or 10%, of our global system remained closed. I'm excited to share that closures have now fallen to less than 2,500 units, which means roughly 95% of our system is open for business in full or limited capacity. The remaining closed stores are dispersed around the globe with about 70% located in malls, transportation centers, airports, and the like. We're encouraged that, generally speaking, when our stores are open, customer trust and demand are high. This is true even though the majority of our dining rooms have been, and remain, closed, highlighting the importance of executing the off-premise occasion well and demonstrating the resilience of our business model. Our brands are becoming even more RED by leveraging consumer insights to adjust operations, menu options, and marketing, and by digitally enabled off-premise capabilities across the globe. With our focus on delivery, carryout, and digital, we have passed some tremendous milestones this year. We now have over 34,000 restaurants offering delivery around the world, representing a 13% increase year-over-year, in part driven by expanded aggregator partnerships. Our digital sales mix has increased dramatically to over 30% of system sales, a 15-point year-over-year improvement. To put that into context, during the quarter, digital sales were approximately $3.5 billion, a $1 billion step-up from Q2 2019. Our brands, working in concert with our Yum! Central technology team, have shown remarkable agility and will continue to unlock sales growth over the near and long term. That's a perfect segue to our four RED brands. Let's start with KFC Division results. Q2 system sales declined 18% as a 21% same-store sales decline was partially offset by 6% net new unit growth. Encouragingly, trends improved from early April troughs, fairly in line with the rate of store reopenings. KFC started the quarter with 5,000 restaurants temporarily closed; peaked in mid-April with about 6,000 closures; and following a massive effort to reopen, ended Q2 with about 95% of stores opened. Our performance in open stores is primarily linked to off-premise capability within a given market. We saw consistent strength in Canada, the U.S., and Australia. And after government-mandated closures eased, we saw resiliency in Germany and the U.K. All of these markets have good drive-thru coverage, strong off-premise capabilities, and robust digital foundations. Western Europe, in particular, KFC France, which was hit hard early on, led the way in reopening markets where all channels and restaurants had been closed due to lockdown. The local teams took action to keep our team members and customers safe while working with government bodies to ensure that we were among the first QSRs to reopen. In the U.S., KFC is serving the right occasion at the right time, fulfilling families' needs for delicious meals to take home and unpack around the dinner table. The timing of our launch of kfc.com for pickup and delivery, the addition of new aggregators, and our bundled bucket meals that travel well all contributed to a fantastic quarter. We recorded the highest average sales per store in the brand's history during a week in early May, and we finished with 7% same-store sales growth for the quarter. Moving on to Pizza Hut, the division reported a Q2 system sales decline of 10% with a 9% same-store sales decline and a 1% net new unit decline. Pizza Hut entered the quarter with over 3,500 restaurants temporarily closed due to the COVID-19 pandemic, with same-store sales growth trending in line with temporary closures. Closures then peaked in mid-April with about 4,000 restaurants temporarily closed. By the end of Q2, about 87% of Pizza Huts were open, with Pizza Hut U.S. Express stores representing half of the remaining closures. In general, markets that operate a dine-in segment have significant stores in malls or transport hubs, or have Express units, have been most impacted by closures and government restrictions. While the effect has been partly offset by increases in delivery and carryout demand, the net impact globally has been a headwind. At Pizza Hut International, temporary closures peaked at approximately 24% in April. Importantly, certain markets, including Canada, Japan, and Australia, closed the quarter with positive results, though this was offset by markets with substantial dine-in and Express footprints. Those markets include the U.K., much of Europe, Central America, the Middle East, and select markets in Asia. In aggregate, off-premise channels generated a positive 10% same-store sales growth and represented 80% of total sales internationally. At Pizza Hut U.S., we balanced value and innovation as we introduced the $9.99 large 3-topping deal and premium products such as the Big Dipper and the Big Dinner Box. Same-store sales grew 5% in the second quarter, and I'm excited to share that in early May, the U.S. recorded its highest average sales week for delivery and carryout in the past eight years. Our off-premise channel generated 21% same-store sales growth when excluding the drag of closed Express stores or 16% same-store sales growth when including the drag of closed Express units. During the quarter, we launched our contactless initiative by adding additional pickup and payment options for customers. Since March 2020, Pizza Hut has served close to 20 million contactless digital orders. We've also welcomed several million new and re-engaged customers to our Hut Rewards loyalty program. At Taco Bell, system sales declined 6%, driven by an 8% same-store sales decline, partially offset by 4% net new unit growth. Taco Bell temporary closures peaked at 500 at the end of Q1 and had reopened 100 units by mid-April. By the end of Q2, about 97% of Taco Bell units were open. At Taco Bell U.S., we pivoted our marketing to promote group bundles, drive awareness of contactless drive-thru and delivery, and thanked our fans, heroes, and communities by giving away free Dorito Locos tacos. We coupled this with abundant value offerings such as cravings boxes, party packs, and our all-new at-home Taco bar, which supported record-breaking sales on Cinco De Mayo and further established Taco Bell as a destination for groups. And to adjust to widespread dining room closures, our company and franchise partners doubled down on world-class operations as Taco Bell served an additional 4.8 million cars through our drive-thrus while achieving an 18-second faster drive-thru time year-over-year. Taco Bell has always been an easy brand for customers to access. And now, with the ability to order on the Taco Bell app and pick up through our world-class drive-thru, they are redefining the easy part of RED. During the quarter, we added over 1 million new users to our active e-commerce platforms through our mobile app and tacobell.com. These operational improvements and increased focus on digital and delivery have made an impact in driving profitable growth for our franchisees, and we are extremely proud of our operators for making it happen. Following an eventful first full quarter as our newest brand, I'm pleased to share details about the Habit Burger Grill. With the majority of the Habit's assets being in line or end cap units, COVID-19 significantly impacted Habit sales just as we were closing on the acquisition in mid-March. With over half of sales typically coming from dine-in and temporary closures running at approximately 10% of Habit’s throughout the quarter, they faced a massive headwind. Impressively, from the April sales lows, the Habit quickly turned things around by shifting focus to off-premise. They ended Q2 with an 18% same-store sales decline, mostly due to temporary closures, and recent trends for open stores are flat to slightly negative. During the quarter, the Habit built customer awareness of new access options and shifted marketing to focus on family meal bundles such as the variety meal that can feed a family for only $30. Digital ordering via mobile and kiosk represented 40% of sales during the quarter. Importantly, each month this year, we have seen a steady increase in the number of app downloads. I've been incredibly impressed with the resilience of this brand, the agility of the entire Habit team, and the know-how sharing taking place between Habit and our legacy brands. None of us could have imagined how Q2 would play out when we made the decision to acquire The Habit, but I'm more confident than ever that the brand and the team will create a new long-term growth opportunity for Yum! I'd now like to spend a moment on the current state of the business. Of course, there remains incredible uncertainty in the global macro outlook owing to COVID-19 and its implications, as evidenced by the different trends we see in each of our 290 brand/country combinations. Due to this uncertainty, we must remain vigilant. That said, we are encouraged about our continued store re-openings, the general financial health of our global franchisee base, and our strong liquidity and balance sheet. Just as importantly, same-store sales trends for open stores stabilized in June, just a few points short of flat. And despite the majority of our dining room still being closed, these trends have continued into July. Finally, earlier this year, we elevated our Recipe for Good to serve as our roadmap for Yum's global strategy for citizenship and sustainability. That recipe is built on the three key pillars of food, people, and planet. Those of you familiar with Yum! know we have always been a people-first company committed to ensuring a safe, welcoming, and inclusive environment for our customers and employees. But recent tragedies across the U.S. have revealed this dark and unacceptable reality and have shown us that we must do more. To that end, at the end of June, we announced our Unlocking Opportunity initiative, with a $100 million commitment over the next five years, of which $50 million was funded in the second quarter. This initiative will promote equity and inclusion, education, and entrepreneurship for our employees, frontline restaurant teams, and communities around the world and will serve as the cornerstone of our Recipe for Good going forward. I look forward to providing further updates on our progress on unlocking opportunity as we bring it to life.

Thank you, David, and good morning, everyone. Today, I'll discuss our second quarter results, bold restaurant development, and our strong liquidity and balance sheet position. But first, I'd like to express my appreciation for the focus and execution of our team members around the globe who rose to the occasion and generated competitively superior results. It has now been a year since I joined Yum!, and the challenges COVID-19 has presented to the entire restaurant industry have given me an even greater appreciation for the power and resilience of Yum!'s unique and highly diversified business model. That, combined with our tremendous strides in digital and delivery, innovation and operations, gives me confidence that Yum! was, is, and will remain a high-growth company generating attractive returns for all stakeholders. To begin, let's discuss Q2. As David mentioned, core operating profit declined 25% during the quarter, and overall Yum! system sales declined 12%. This was driven by a 15% same-store sales decline, partly offset by a 3% increase in net units year-over-year. The brand most impacted was KFC, where operating margin, excluding foreign exchange, decreased approximately 8% versus prior year, driven by lower same-store sales due in large part to temporary closures, higher bad debt expense, and lower company restaurant margins, partially offset by net new unit growth. Excluding The Habit, general and administrative expenses, excluding foreign exchange and special items, were approximately flat over the second quarter 2019 as one-time COVID-related expenses were offset by reduced P&E, other efficiency actions, and one-time savings. Interest expense was approximately $131 million, a 10% increase from prior year, driven by higher debt balances, including our outstanding revolver balance, partially offset by lower interest rates on our floating rate debt. We recorded $84 million of pretax investment income related to the change in fair value of our investment in Grubhub, which resulted in a $0.21 benefit to EPS in the second quarter. As we recorded $24 million of pretax investment income in the second quarter of 2019 for a $0.06 benefit to EPS, our Grubhub investments favorably impacted year-over-year EPS growth by $0.15. Our effective tax rate was 18.8% during the quarter, a decrease from the prior year, driven by tax benefits from share-based compensation. Adding this up, EPS, excluding special items, was $0.82. This represented a 12% decline compared to ex-special EPS of $0.93 in the second quarter of 2019. On the bold restaurant development front, we delivered 3% net new unit growth over the second quarter of 2019. This was benefited by the addition of 276 Habit restaurants in Q1 of this year and the stellar unit growth we had in the second half of 2019. During the quarter, we opened 328 restaurants and closed 446, with openings led by China, Asia, the U.S., Russia, and Thailand. To put the quarter into context, COVID-19 impacts and uncertainties led to lower-than-normal gross openings and somewhat higher-than-normal closures, which, in combination, drove year-over-year net unit growth to 3% compared to our recent run rate of 4%. These uncertainties should abate in time, and we remain confident in the long-term outlook for net unit growth backed by strong unit-level economics. Next, the vast majority of our restaurants temporarily closed due to the pandemic have already partially reopened, and we continue to monitor those few areas of the world where we have restaurants that remain temporarily closed. COVID-19 economic impacts and recoveries are unique to each country and hard to predict. Therefore, while it's possible, some of these restaurants may end up closing permanently. As of now, it is too early to forecast that outcome with accuracy. As we've highlighted over the past few months, we are supporting our 3C franchise partners during the pandemic. The primary tools for doing so include capital obligation deferrals and royalty grace periods, which have largely been successful in helping our franchisees. Where a franchisee cannot continue to operate due to deep financial distress, our preference is to assist with having a new or existing franchise partner acquire and operate their restaurants. As David mentioned, we have been encouraged by the resilience of our franchisees during the course of the pandemic. Partnering with and supporting them through the crisis highlighted the importance of ensuring a strong system. The general health of our global franchisee base is good, and the vast majority are expected to emerge from the pandemic well-positioned for future growth. As our focus shifts from short-term crisis management to long-term growth, our recently formed franchisee health committee is working to enhance our visibility into the health of our global system and to ensure our franchisees maintain long-term financial strength. As it relates to the Chapter 11 filing of NPC, one of our Pizza Hut U.S. franchisees, this was an expected development, and we view it as an opportunity to create a better future for Pizza Hut restaurants owned by NPC and therefore, the overall system in the U.S. As the proceedings continue, we expect that there will be some issues that we can resolve with NPC and related parties directly and others that will require briefings and court rulings. Ultimately, we will support an outcome that results in a lower, more sustainable level of debt, a higher focus on operational excellence, and a greater level of investment for the restaurants in the NPC system. In Q2, bad debt expense related to royalties, rent, and other franchise services we provide was $13 million, an increase of $11 million compared to the second quarter of 2019, but well below our first-quarter figure. The expense was attributable to incremental bad debt in KFC International due to financial hardships encountered by certain franchisees, largely due to temporary store closures, as well as bad debt in the U.S. related to NPC. This increase was partially offset by significant recoveries in the U.S. related to Pizza Hut, as sales and unit-level profitability rebounded strongly during the quarter. We are encouraged with the improvement shown in the second quarter. Now for an update on our balance sheet and liquidity position, as well as our latest thoughts on capital structure and priorities for capital allocation. First, we ended Q2 with cash and cash equivalents of $1.2 billion, excluding restricted cash. This represented 5.5 times net leverage of consolidated EBITDA, which is slightly above our historical target of approximately 5 times. Importantly, we began paying off our revolver draw during Q2, with only $575 million drawn at quarter's end compared to $950 million drawn at the end of Q1. When considered alongside the $0.47 dividend we declared during the quarter, we believe this should clearly demonstrate the confidence we have in our liquidity position at this time. Second, our capital priorities remain unchanged: invest in the business, maintain a healthy balance sheet, pay a competitive dividend, and return the remainder of excess cash flows to shareholders via repurchases. Regarding our commitment to a healthy balance sheet, we plan to continue repayment of our revolver drawdown and to grow back into our historical 5 times consolidated net leverage target over time. Third, we are ending the suspension of our $2 billion share repurchase program. We may resume repurchases should business trends persist and should we continue to gain confidence in the timeline for achieving a healthy balance sheet, as I just outlined. In summary, Yum!'s future is bright. Our business model has proven resilient, growth in our digital capability and sales has accelerated, and overall sales continue to trend in the right direction as we reopen. We remain confident our brands are purpose-built for delivering a modern off-premise dining experience to customers around the globe. Just as important to our long-term growth, the investment case for building new units is as strong as ever, especially when enhanced by our continued investments in digital capabilities, such as ordering and payment and enhanced drive-thru and numerous contactless off-premise access options. By leveraging these scale benefits to drive profitable system sales growth for franchisees, we believe we are well-positioned to accelerate growth and create value for all stakeholders in the future. That said, lingering uncertainties remain for the near term, which make the timeframe for such acceleration difficult to forecast with confidence. Therefore, we believe it is still too early to reassert specific guidance. We appreciate your understanding and look forward to discussing progress in coming quarters. Now, the team and I are happy to take your questions.

Thank you. We will now begin the question-and-answer session. The first question today comes from John Glass of Morgan Stanley.

Thanks very much. Chris, just going back to the comments on development. What are the conversations with the franchisees? I know it matters by market, by brand. Are you willing to change your philosophy in terms of capital allocation to help rekindle that growth in certain markets? How do they think about the share opportunity ahead of them in certain markets where some of these smaller chains independents? What – I know you're not going to give specific guidance, but can you talk about the relative enthusiasm? Is it too early to give a comment about that, about resuming growth in various markets?

Good question, John. Unit development and expanding our network have been crucial to our strategy, and we believe they will continue to be significant for Yum! in the long run. However, due to uncertainty in the near term, we are not sure when we will return to that. The conversation is influenced by global market conditions. In some markets, sales are robust, our brands have demonstrated their resilience, and our franchisees are proactive. For example, Yum! China has confirmed their unit goals for the year. Conversely, there are other markets facing challenges such as closures or sales impacts from COVID, where franchisees are primarily focused on essential operations. Overall, the discussions vary depending on the region, but we believe the case for investing in our restaurants will strengthen moving forward. Our brands have shown their durability, real estate costs are expected to be more favorable, and our digital capabilities enable us to adapt to off-premise sales. We are focused on optimizing our operations for this new environment, and we are optimistic about the investment potential.

And look, that said, we're not wavering from our asset-light model, right? Our model is for franchisees to do development. Within that, though, we've been building a couple of Taco Bells, equity stores. To the point of your question, John, we are going to continue to do that. And then Habit, we talked about the data a little bit in the prepared remarks, but we've been really pleased with how Habit has gone through this and the resiliency of that business, and they have been building corporate stores. We'll continue to do that as we slowly open it up to franchising over time. So there will be company investment in mostly Taco Bells and Habit stores over the near term.

Next question, please.

Hey, thanks for the question. You just touched a little bit on Yum!'s willingness, I guess, to maybe invest in some of these franchisees. And I guess the question comes back somewhat to the NPC situation. And I guess, if you could put some capital in and maybe accelerate some of the asset changes there. Is that something Yum!'s considering? Or is that something that will be off the table at this point? Thanks.

Yes. Again, back to the comment I just made. We're committed to the asset-light model. We never rule out any possibility, but there's plenty of interest in getting into all of our different businesses around the world as investors have seen how resilient our business is. And we're not going to comment very specifically about the NPC situation, but other than to say we're working productively. There's lots of interest in that business, and we expect it to be in the hands of a capable franchisee coming out of this process.

Thank you. Next question, please.

Thank you. I was wondering if you could maybe talk about Pizza Hut and KFC in particular. They would – I characterize them as maybe some of the few beneficiaries, if you will, of the changes in the consumer behavior during the pandemic. Both I think comping better. Certainly, the off-premise business repeats that, and we've seen it in a long time. Can you just talk about how you think about retaining some of that strength, specifically the two dynamics I'm interested is what happens when people are able to go out, eat again? Your dining rooms are open. How much of that do you think you'd give back? And then also to the extent that you've taken market share, how do you keep that Pizza Hut, ex closures and dine-in comps, I think, over 20%, which is actually pretty consistent with what we've seen from other large pizza chains who have historically, I think, led Pizza Hut in many quarters. So I guess, how do you capitalize on these things? Or can you over the long term? Thanks.

Great question, Sara. Our goal is definitely to maintain the progress we've made. Much of the success at Pizza Hut and KFC comes from their excellent Family Meal options, which are fitting for the current times. I'm really encouraged by the overwhelmingly positive feedback we receive from our customer satisfaction surveys, especially from new customers attracted to our brands during this period. These factors suggest that we should be able to retain some of these new customers, thanks to the great experiences they’re having in this new normal. Predicting what the future will look like in six months is challenging. However, we take pride in our business's resilience and agility, enabling us to adapt to changing customer needs. Like many retailers, we're analyzing data regarding the return of customers to dining-in in specific areas. While we notice some impact on our business, it isn't significant enough to suggest that we'll lose all the gains we've made. Overall, the outlook for the future is quite positive.

Thanks. Operator, next question please.

Hi. Thank you and apologies for going through the release quickly. First, I noticed the significant increase in Taco Bell store margins, considering the comparable figures you reported. Can you provide some insight on what led to that and how much of that margin is sustainable? Is there a new expected margin for Taco Bell company stores coming out of this? Secondly, there has been a lot of news regarding disruptions in third-party delivery. Can you comment on your ability to grow delivery revenue year-over-year, specifically in the U.S. and globally if you wish? How might potential changes in that relationship affect your business? Thank you.

Yes. Thanks, John. Good questions. On the Taco Bell store margins, I'd say, yes, obviously, 24.5% and outstanding result from Taco Bell. And I think the main takeaway for us is that shows how resilient the Taco Bell business model is, similar to what we've seen in our other brands around the globe. But I think that's the main takeaway for us is the resiliency. That was primarily driven by some things that probably are related to the pandemic. So, we have seen higher average check sizes as consumers are buying more for family occasions than prior to the pandemic. We've also had some labor efficiencies as the dining rooms have been closed, and we've adjusted our operating hours for a bit. So, I'd say those two things were the primary things that helped. Of course, we had some things on the other side of the equation. We paid some extra bonuses to our front-line and had other COVID-related expenses. So, that helped balance it. So, I think it was a good story. But those two primary drivers of check and dining rooms, once those things go back to normal, those would be things that would sort of swing back to the other direction. So, I think the main takeaway is resiliency during the crisis. On third-party delivery, I think at the highest level, our philosophy remains we want to be accessible to our customers where they want to do business with us. And we build relationships with aggregators to serve that purpose. In terms of total delivery capabilities around the globe, we saw a more than 10% increase versus last year in terms of our number of restaurants. We're now north of 34,000 restaurants that offer delivery, up from just over 30,000 at this point last year. Part of that's driven by our aggregated relationships. Of course, we've got our own proprietary delivery capabilities and a number of those restaurants as well. So, it's a mix there. But I think in general, where customers are doing business with aggregators, we want to be there.

Yes. The other point about delivery, as much as we've seen delivery growth, we've also seen a lot of carryout growth with options like curbside pickup in a contactless way, which is obviously great for our operators because it's a high-margin business when you can do carry-out in that way. So the growth that we're seeing, yes, delivery is one of the drivers. But carryout is very much growing at the same kind of pace.

Next question please.

Thanks, and I hope you're all doing well. Just wondering if you could talk a bit more about Taco Bell, the strength of the brand and the franchisees, and thinking about maintaining that industry-leading momentum going forward. Maybe specifically, if you could comment on some of the latest developments, including the loyalty program, what the opportunity there is, as well as menu simplification? And if the drivers there are more operations in speed or making way for new items coming in the future? Thank you very much.

Taco Bell performed well this quarter. They remained stable over the past two years and made significant advancements. Recent sales reports indicate their strongest performance since April. In the U.S., Taco Bell, which generates nearly a quarter of its revenue from dine-in and late-night breakfast services, faced the biggest challenges initially, but they have now recovered significantly. As we entered July, Taco Bell and the other major U.S. brands registered positive results, highlighting their remarkable recovery. This progress can be attributed to their effective pivoting, capitalizing on popular menu items like the Grilled Cheese Burrito, which has been very successful. The recently launched loyalty program is still new but holds promise for growth. Store-level margins reached a record high for us this quarter, indicating strong brand momentum. I'm optimistic about Taco Bell's future, and the partnership with franchisees has been outstanding as we navigated these challenges together. Although they faced tough times at the start of the pandemic, they quickly collaborated with franchisees. Mark King and his team have worked diligently to strengthen the business and maintain momentum.

Thank you. Next question please.

Great. Thanks. As investors try to better understand when the business can return to 4% net restaurant development, can you help set the backdrop a little bit? I'm looking to learn more about KFC International franchisees' access to capital, particularly in emerging markets since this is the biggest engine behind Yum! development in the context of the bad debt expense step-up that you saw during the quarter? Thanks.

Yeah. Look, the return to 4% is not a matter of if, it's just a matter of when. And we have 2,000 franchisees around the world. The vast majority of them are coming out of this in good shape. But we have pockets where franchisees are still challenged. We still have a couple of thousand stores that are closed with our bigger presence in emerging markets and emerging markets struggling more to deal with the pandemic in their countries. That's a challenge, which all adds up to making it very difficult to predict exact timing on when we'll get back to our long-term algorithm. But again, there's so many positive things when it comes to development in terms of availability of sites, how resilient our business model has proven, which is obviously attractive to investors that want to invest in this space; the partnerships that we've developed with the vast majority of our franchisees to get through this together; and the positive feelings that creates and the interest in working together long-term to grow the brand. So it will vary by market. It will vary by franchisee in terms of when we get back to the algorithm. Obviously, Yum! China is already there, as they announced last night, which is very encouraging.

Thank you. Next question, please.

Great. Thanks for taking the question. I wanted to ask about your advertising strategy, especially in the U.S. in the second half of the year. Do you guys plan to continue to advertise? Or do you plan on pulling back at all with the election year? And just my second question would be, do you need to get the dining rooms open to start to recapture the previous same-store sales, I guess, momentum you had pre-COVID? Or can you do that with the drive-thru units that you have currently? Thanks.

We currently have 24,000 dining rooms closed, with only a small number open in the U.S. Despite this, our sales globally are nearing flat levels, which is impressive given that many of our stores have closed dining rooms. While it is not critical to our success, we plan to reopen them when it makes sense, and we have established safety protocols to ensure customer safety. Although the situation varies in different markets, particularly for Pizza Hut dine-in restaurants which rely more on dining room traffic, we have managed to adapt successfully overall. Regarding advertising, our strategies have evolved, and we're promoting our brands differently, including focusing on core products and utilizing more digital channels. We are committed to maintaining advertising spending across our brands for the rest of the year, although the percentage of sales spent varies by brand.

Thanks, operator. We'll now take the last question. Thank you.

Yeah. Look, thanks, everybody, for spending time with us this morning. As you can tell from the comments, we're incredibly proud of the progress that we've made during the quarter. We were joking that April feels like it was back in 2018. It was so long ago. And what's relevant is the momentum we have coming out of the quarter. I think we've demonstrated that the business is incredibly resilient and nimble, that our teams around the world can move with speed to get new solutions out to meet customers' needs. And they've done that incredibly successfully. And really, what's happened this quarter has accelerated a lot of the strategies that we already had in place, which is a big positive in terms of the business that we do digitally. As we've mentioned, that's up $1 billion year-over-year, actually more than $1 billion. And we – that was part of our plan to grow that business, and we're proud of the progress we've made there. And even things like moving from dine-in assets to delivery assets, that's been accelerated by Q2 2020. So we're coming out of it much stronger and excited about the future. Yum! was, is, and will remain a high-growth company for all stakeholders. I think we've demonstrated that this quarter. So thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.